Signs of an economic recovery in Asia come as leaders of the G20 leading industrialized nations prepare to meet in Pittsburgh (September 24-25). But economists say for the recovery to be sustainable the G20 has to find ways to rebalance the global economy, and that Asia has a big role in the shaping the outcome.
Investors express outrage
Every business day, at around noon, Mrs. Chang ties homemade banners outside a branch of Citibank in Hong Kong. The banners say "Citibank is an evil bank".
"Citibank cheated and took my money. I lost one million Hong Kong dollars [$125,000]" she said.
Mrs. Chang is among about 30,000 Hong Kong investors who say they were misled into buying Lehman Brothers "mini-bonds" - complex financial instruments linked to U.S. home mortgages developed by the American investment bank. Several banks in Hong Kong sold the bonds, including Citibank.
When Lehman Brothers collapsed a year ago, many of these investors say they did not know it had anything to do with them. How the bankruptcy of one bank halfway across the globe could affect a retired tailor in Hong Kong exemplifies the globalization of the financial system.
Financial system increasingly interlinked
Over the years, the global economic and financial system has become increasingly interlinked, yet polarized into the big spending West and savers in Asia.
Consumers in the West were the biggest buyers of cheap Asian exports, which allowed Asian governments to pile up trillions of dollars in foreign currency reserves. The West also borrowed heavily from Asia. And when the asset bubble in the U.S. burst last year, consumers in the West cut back on spending - and that hit Asia hard.
Nicholas Kwan, Asia economist at the British bank Standard Chartered, says the G20 needs to address this imbalance because it is part of the complex set of factors that led to the crisis.
"We know that it's not just one country's problem that this crisis started with," Kwan noted. "We have to come up with something that will allow a more balanced economy around the world, like between the West and the East. Can the West leverage less, which means they need to save more, but they need to save in a way that they don't crunch the demand too sharply."
Reform from both sides
At the recent World Economic Forum in China, David Dollar, the U.S. Treasury Department's representative to China, says it takes reforms from both sides.
"The U.S. will not be same source of demand as it has been over the past decade," Dollar said. "So we do feel it's important for the big surplus economies of the recent period, which would primarily be China, Japan and Germany, … to stimulate more domestic demand and more consumption so that there's sufficient demand in the world."
Governments from China to Thailand are trying to do so, through stimulus spending, subsidies and other means. But some countries have a long way to go. Muhammad Lutfi, chairman of Indonesia's Investment Coordinating Board, says his country is held back by the poverty of large percentage of its population. Indonesia is a member of the G20.
"I have 240 million people, only 53 percent with electricity. Because we don't have electricity that means 100 million people are not included in the production cycle," he explained. "If I can develop a power plant, these people can be developed into a new middle class, they can produce and they can consume. And that is I think the responsibility of emerging markets like Indonesia."
Reluctance to spend
The reluctance to spend in Asia stems largely from the lack of social safety nets - inadequate public options for health care, pensions and education. In Hong Kong, Mrs. Chang says she and her husband saved hard for their retirement, only to see it disappear.
Trade liberalization and currencies have something to do with the rebalancing process. China and the United States have long disagreed over the value of the yuan. Washington says the yuan is too weak, making Chinese exports cheap and contributing to China's huge trade imbalance. Recently, Chinese officials called for an alternative to the U.S. dollar as an international reserve currency - a topic that is likely to find its way in Pittsburgh.
Economists say a global readjustment is needed to stabilize the economy and to ensure the recovery will be sustainable. Kwan at Standard Chartered says the region is not yet on solid footing, despite signs of an early recovery.
"We are much better now than six months ago," Kwan said. "But don't be taken that we are safe from here. Many of the so-called recovery are still, probably, only temporary because much of those are because of inventory restocking, some of those are because of these fiscal stimulus, which will not last too long."
When and how to start ending stimulus measures is also expected to be high on the summit's agenda. Beijing plans to continue its loose monetary policy and government spending.
Quest for greater voice
Business leaders in Asia and elsewhere say the crisis has further shifted economic power to Asia. Many say the region, particularly China, should have more say in shaping the future. Like other major developing economies, such as India and Brazil, Asian governments say they should have a greater voice in multilateral organizations, such as the World Bank.
Caio Koch-Weser is a vice chairman of Deutsche Bank and a former German financial official at the G20. He says it is a better platform for global cooperation than the G8 group of leading industrialized nations.
"Use the G20 now. I think it is the right forum now for dealing with how you orchestrate, how you enhance surveillance for better governance of the international monetary and financial system," Caio said. "And again my plea to China would be - you are now big, the spillover effects of what you do are so enormous to the world that responsible leadership and not hesitating to assume leadership in these international fora is in everybody's interest."
Aside from China and Indonesia, the other Asian nations at the G20 are Japan, South Korea and India.